Real estate is one of the largest expense categories for most businesses. It is also an area where hard-earned money can be wasted.
When renewing or negotiating a lease, be sure to get answers to these questions. Ensure that any terms you desire are written clearly into the lease.
Term. Conservatively assess your present and projected needs. You don’t want to be stuck leasing space that you don’t need, or that does not fully meet your needs. When in doubt, go with a shorter lease term.
Neighbors. Are there any who could become a nuisance? Will your landlord agree to not allow a tenant that is in a similar line of work? Are there any tenants that handle or discharge hazardous chemicals?
Actual Usable Space. The space you actually use is the “usable space.” Rentable space includes a common area factor for the space you share with the other tenants, such as elevators, stairwells, and common areas (hallways and bathrooms). Measure the usable space and calculate the rent per usable square foot compared to alternative space options.
Gross or Net. Will the lease be on a “gross” basis (the landlord pays for taxes, utilities, insurance, etc.) or a “net” basis (the tenant pays for these expenses)?
Tenant Improvements. Who will pay for improvements or alterations and repairs to the space prior to moving in? They will be your responsibility if the lease specifies acceptance of the property as is.
Renewal Option. Is there a renewal options? Options are good. It would be nice to get some extension options.
Purchase Option. Again, options are good. Would the landlord be willing to give you a purchase option with a specific price and terms if you were interested?
Cancellation Option. Are there any terms under which the landlord will let you out of the lease? Or let you cancel the lease? Any terms that might be better than simply paying the lease through the term?
Sublease or Assignment. Do you have the right to sublease the property or assign the lease agreement to another party if needed?
Security Deposit. Will it be held in an interest-bearing account? For whose benefit? What will the deposit be used for?
Code Restrictions and Zoning. Could existing or planned building code, zoning, or infrastructure changes restrict your ability to operate and expand?
Parking. Are there enough spaces for you and your customers? Is parking free or does it require an extra fee?
Relief. If you become unable to use the space because of damage or a
disaster, do you still have to pay?
Lease Agreement. Use a standard lease form approved by your real estate commission or board of realtors. It will be a good and basic agreement not “tilted” to either party. Add to or delete from it with caution, and only with the advice of a lawyer experienced in real estate transactions. –David L. Perkins, Jr.
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